FPL: Just Keeping the Lights On

Important utility news out of Florida (again) on FPL-OLD (A2/A- at holdco):

The Florida Public Service Commission ruled that FPL’s Florida Power & Light Co. utility will be allowed a $75.5 million revenue increase this year. The company had requested $959 million. Commissioners also turned down FPL’s request for an additional $427 million increase in 2011.

FPL responded by announcing suspension of investments in Florida worth about $10 billion over the next five years. The company will halt efficiency and reliability projects, as well as development of new nuclear reactors and modernization of its Riviera Beach and Cape Canaveral plants.

Earlier this week, Florida denied a request by Progress Energy Inc. (NYSE:PGN) for a $500 million rate increase at its utility in the state. In declining to give Progress and FPL the increases they requested, members of the Public Service Commission cited concern over increasing utility bills at a time when consumers are being hurt by the recession.

Another key decision was to suspend the collection of money from customers for a storm repair reserve fund. That reduced the staff recommendation by another $50 million. FPL had sought $150 million a year for the fund that's now at $215 million.

Republican Attorney General Bill McCollum and Democratic Chief Financial Officer Alex Sink, both candidates for governor and Republican Gov. Charlie Crist who is running for US Senate opposed increasing rates. Yes Virginia, there can be bipartisan agreement when running for office.

S&P came out with the following action:

Standard & Poor's Ratings Services placed the 'A' corporate credit ratings and all other ratings on FPL Group Inc. and subsidiaries on CreditWatch with negative implications based on this week's decision by the Florida Public Service Commission (FPSC) to drastically cut a requested base rate increase and discontinue a credit-enhancing rate mechanism for generating plant additions for FPL subsidiary Florida Power & Light Co. (FP&L). The lower-than-expected revenues combined with continued economic sluggishness in the state are likely to impede the ability of the company to achieve credit metrics that support current ratings. The deterioration in the regulatory and economic environments in Florida could also affect business strategy decisions at the parent that could place further pressure on the business risk profile.

Earlier, the other rating agencies weighed in:

Fitch Ratings has placed the ratings of FPL Group, Inc. ((FPL-OLD)), FPL Group Capital, Inc. (Group Capital) and Florida Power & Light Company (FP&L) on Rating Watch Negative. The action is taken in response to the adverse decision by the Florida Public Service Commission (FPSC) on Jan. 11 in the Progress Energy Florida (PEF) rate case and the greater possibility of a poor outcome of the pending FP&L rate case, to be determined by the FPSC on Jan. 13. The change in status affects approximately $11 billion of securities.

On the news, the equity was down 2.9%, bonds widened out (at holdco) by 5bps, preferreds were down less than 1% and hybrids didn't budge. I would expect that the company might lose one of their As.

On a final note, wasn't there talk of upgrading the utility infrastructure within the country? If Florida, with one of the lowest cost of power to consumers, can dial back requests to this degree, what can we expect from other hard hit states (which number quite a few).

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